There are five (5) transaction cycles in business that relate to accounting. However, the most relevant of them are the following four (4) cycles: (a) Financing, (b) Human Resources (HR), (c) Expenditure, and (d) Revenue (Wiley, 2018). The financing cycle consists in receiving and providing funds from/to other cycles above. The HR cycle, also known as payroll, refers to all business procedures related to employees, including financial matters such as paychecks and income taxes. As for the expenditure cycle, it applies to all company’s purchases of supplies or services. HR and expenditure cycles contribute to the company’s expenses, while sales income is associated with the revenue cycle. All described cycles are taken into account while issuing financial statements. The audit procedures will be conducted concerning the revenue cycle.
The audit’s purpose is verification of the company’s financial statements relating to the revenue. The audit process intends to assess the company’s revenue and ensure that any fictitious, excluded, or understated transactions are absent. The second objective is to confirm that the company’s valuation of products/services is appropriate without any falsifications and incorrect overhead amounts. The third objective is to verify that the company has the necessary documentation for all its inventory/services in terms of legal trade. The fourth and final objective is to ensure that the company’s financial statements are relevant, clear, and consistent in form without any errors. The audit process consists of several tests: auditors compare the company’s income statements to the company’s revenue accounts; they evaluate inventory/services with the necessary documentation inspected; they check the financial statements regarding disclosure requirements. The tests correspond to objectives and will be conducted strictly following the protocol.
Revenue audit will be implemented using checklists, and auditors will write suggestions and the final report after the implementation. The audit process, its results, and possible violations with evidence provided will be discussed with the management. Auditors will follow the objectives under management assertions of existence, completeness, accuracy and valuation, rights and obligations, and presentation.
Reference
Wiley. (2018). Wiley CPAexcel exam review 2018 study guide: Business environment and concepts. John Wiley & Sons.